Understanding Subrogation: A Crucial Aspect of Insurance Claims

subrogation

Understanding Subrogation: A Crucial Aspect of Insurance Claims

When it comes to insurance, the terminology and processes can sometimes be complex and difficult to navigate, especially during a claim. One term that often arises but may not be fully understood by policyholders is “subrogation.” At Arete Adjusting, we believe that understanding subrogation is essential for the insured.

What is Subrogation?

Subrogation is a legal principle in the insurance industry that permits an insurer to assume the rights of the insured once a claim has been settled. Essentially, after compensating the policyholder for their loss, the insurance company can seek to recover the costs by pursuing a third-party responsible for the damage. This process helps insurers recover some or all of the money they paid out to their policyholder, while also ensuring that the responsible party is held accountable.

For example, if a policyholder’s property is damaged by a third party—such as in a car accident where the other driver is at fault—the insurer will cover the policyholder’s claim. After the claim is settled, the insurer may then pursue the at-fault party or their insurer to recover the costs. This pursuit of recovery is subrogation.

Why is Subrogation Important?

Subrogation plays a vital role in the insurance ecosystem for several reasons:

  1. Cost Recovery: It allows insurers to recover funds, which can help keep insurance premiums lower for all policyholders. By pursuing the responsible party, insurers can offset the costs of claims.
  2. Accountability: Subrogation ensures that the party responsible for the loss is held accountable, rather than the loss being absorbed by the policyholder or the insurer.
  3. Fairness: It promotes fairness by ensuring that the party who caused the damage is ultimately responsible for the costs, rather than spreading those costs across all policyholders.

How Arete Adjusting Can Simplify the Process

The subrogation process can be complex and time-consuming.  At Arete, we consider subrogation at the onset and during a claim, not just at the end. By addressing subrogation during the entire claim process, we are affording insurers and their policyholders the best possible recovery.

By partnering with Arete Adjusting, insurers can benefit from:

  1. Expertise: Our team has extensive experience in subrogation, ensuring that every opportunity for recovery is explored and pursued effectively.
  2. Efficiency: We streamline the subrogation process, reducing the time and resources needed from the insurer’s side, allowing them to focus on providing top-notch service to their policyholders.
  3. Flexibility: Arete Adjusting doesn’t need to handle the entire claim process to assist with subrogation. Whether we manage the initial adjustment or just the subrogation, we offer flexible solutions tailored to the insurer’s needs.

Making Life Easier for the Insured

For policyholders, dealing with a claim can be stressful. They also must know when a company like Arete can step in and help.

All insurers want to be notified of a claim, even when the claim value is under the deductible. The difference between claims exceeding a deductible versus ones beneath is that if the claim is over the deductible, the insurers will do all the work. Beneath the deductible, the insured customarily proceeds alone. 

Arete can work with policyholders when there is a high dollar deductible and they lack either an in-house team or the experience to pursue the claim. For instance, if a policyholder has a $100,000 deductible and an $80,000 claim, Arete can provide advisory and technical assistance. 

By choosing an insurer that works with Arete Adjusting, policyholders can rest assured that their insurer is backed by a team of experts who will handle the subrogation process smoothly and efficiently. This means faster resolutions, better loss ratios, less hassle, and peace of mind for the insured.

Subrogation is a critical aspect of the insurance claims process that benefits both insurers and policyholders. By recovering costs from the responsible party, insurers can maintain fair pricing, and policyholders can avoid the financial impact of a claim. Arete Adjusting’s specialized services offer a streamlined, efficient solution that allows insurers to focus on what they do best while ensuring the process is handled expertly.

Contact us today to learn more.

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Freight Forwarders Liability Insurance on Air Freight: Why It’s So Important

If you are an Air Forwarder, you may ask if Freight Forwarders Liability (FFL) Insurance is worthwhile. Why is it needed, as airlines carry most of the risk when an incident happens?

FFL Insurance played an important role in protecting in the following examples:

Wrongful Destination Claim

Due to an administration error, a shipment was air freighted to London, Canada instead of London, England. The Freight Forwarder incurred charges to ship the cargo back to its correct destination, and those fees (over USD 20,000) were covered by insurers.

Customs Fine

Due to an employee mistake on documentation, a cargo shipment was delayed at its destination in South Africa and received a customs fine. This was covered by insurers, who handled the delay claim plus the fine.

Damage to Cargo

Whilst most claims can be passed to the airline, airlines are notorious for not responding. It is common for the merchant to sue the Forwarder rather than wait for a response from the airline. In one instance, Lufthansa failed to respond for a time extension received from a cargo insurance company for USD 50,000 of food products deteriorated in transit. Insurers appointed lawyers and settled the claim whilst a recovery action was taken against the airline.

FFL Insurance is designed for Freight Forwarders and Forwarders only. In today’s world, the Forwarder is expected to bear a much greater risk than previously, and most service contracts go against them. This may extend to customs fines, uncleared cargo, damage to cargo, or aircraft and documentation errors.

Most of the claims are defending the insured, and the policy is there to cover the costs in doing this, either through the appointment of lawyers, surveyors, or their in-house legal team. Defence Cover is from the ground up, so unless a claim is paid, all the legal fees are paid by insurers.

If and when a claim needs to be paid, it is often expensive in the air freight business. Cargo and freight values are often much higher than sea freight, so claims from the merchant, E&O matters, or customs fines are also high. Insurers have paid claims from USD 2,500 to over one million dollars, and we have seen Forwarders go bankrupt without insurance. This is not cargo insurance but protection for the Forwarder.

FFL Insurance covers not only claims arising from your customer, but also the airlines. In the event of leakage, poor packing, or even explosion, the airline will come against the Forwarder. This can be costly from the claim but also commercially, as we have seen multiple Forwarders blacklisted for this. Your insurers will not only handle these claims, but also ensure you have adequate protection to stop unreasonable demands.

FFL Insurance offers protection against claims arising from your customer and airline, as well as errors committed by your employees. It is designed for Freight Forwarders, so not only is the defence cover from the ground up, but the wording is bespoke to independent Forwarders.

Please contact our specialists: info@areteadjusting.com.

Arete Adjusting, LLC is a member of the +8 Partners ecosystem.

Disclaimer: All claims are subject to the terms, conditions and exclusions of the relevant product disclosure statement and/or policy.

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What Makes a Contract Special?

From a risk management perspective, this question is answered by the contractual terms that make the policy holder pay more when they have a claim compared to when standard trading conditions apply.

Standard trading contracts are often taken from other industries that are unsuited to the transportation and logistics sectors. Signing these contracts can lead to significant financial losses, the possibility of no insurance coverage, and even bankruptcy.

The following scenarios found within standard contracts are important to pay attention to, as they can have very high-risk outcomes for the policy holder:

“You are responsible for all claims.”
What it means: Strict liability regardless of any fault or negligence.

“You are responsible for the full value of the cargo.”
What it means: No weight or package limitation, including high value cargoes.

“You are responsible for delays and consequential losses.”
What it means: No limit to freight charges and time crucial delivery.

“You have no defenses to claims.”
What it means: No reference to protection for matters beyond your control.

“You have no recovery against responsible carriers.”
What it means: Certain clauses make you fully responsible for all carriers in the chain.

“You agree to a claimant supportive legal system.”
What it means: Certain legal regimes are less favorable to logistics providers.

For More Information

Please contact our specialists: info@areteadjusting.com.

Arete Adjusting, LLC is a member of the +8 Partners ecosystem. This article was authored by Phillip Emmanuel, Chief Operating Officer at +8 Partners.

Disclaimer: All claims are subject to the terms, conditions and exclusions of the relevant product disclosure statement and/or policy.

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The Importance of Salvage

If you have a claim under your cargo or liability insurance, salvage can be a major headache for the forwarder.

When an accident occurs, the merchant is understandably upset. Their cargo is damaged, but there also may be other implications to the supply chain. Often, they will prefer to abandon the cargo and re-order a new shipment. Such behaviour can be extremely costly for both merchant and even the forwarder.

The forwarder must ensure they try to get the cargo to destination before arranging any survey or inspection. If an incident happens in the port and the cargo is deemed damaged, the merchant will most likely not want their cargo. And may not want to spend time salvaging with the belief that this is the cargo insurer’s responsibility under subrogation.

However, this is not the case. The duty to mitigate/salvage is on the merchant – not the insurer. Subrogation is only after the insurers have settled the case.

This misunderstanding may result in expensive storage / demurrage / disposal / labour charges that insurers are unlikely to compensate. Therefore, we would always recommend ensuring the cargo arrives at destination before any survey is undertaken.

Any delay may also prejudice the claim, especially if it involves perishables. The insurer’s surveyor may help, but if the merchant refuses to cooperate, then this will be a total loss in a very short time. Whilst insurers will not override a decision by the health department to condemn cargo, often the discretion is on the insurer to decide. Perishables may be condemned for human consumption, but they will have a secondary market under animal feed, and this is where complications occur. There is still salvage, and it is not deemed a total loss.

Ultimately, speedy action on finding salvage buyers results in the claim being paid faster with less costs. It’s also common for the merchant to make a salvage offer for cargo that may fall outside its original market, but they still have a use for. This can make adjusting the claim even quicker and simpler.

Salvage is the number one reason for delay on claims adjusting, so it is imperative to involve the broker as soon as a dispute arises.

For questions or more information regarding salvage, please contact our specialists: info@areteadjusting.com.

This article was written with +8 Partners member company World Insurance Services, Inc. and authored by Richard Kamppari Baker, Claims Director at World Insurance. Arete Adjusting, LLC is a member of the +8 Partners ecosystem.

Disclaimer: All claims are subject to the terms, conditions and exclusions of the relevant product disclosure statement and/or policy.

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Litigation Funding and Talent Shortages

“Big issues for the industry says this new arrival”.

Arete Adjusting recently launched operations in North America, fixing its sight on the marine and logistics insurance market.

In an interview with Insurance Business America, Arete’s CEO, William (Liam) Richards, discusses the decision to enter North America and the need for a better claims adjusting experience.

Click here to read the full article.

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Arete Adjusting Launches Operations in North America

Experienced leadership, technical differentiators key to underwriter customers.

Arete Adjusting, LLC (Arete), a Third Party Administrator (TPA) member company of insurance ecosystem +8 Partners, announces its entry into the North American claims market.

Arete will utilize people, technology and its fellow +8 member companies to provide a comprehensive and insightful claims management service to the cargo and logistics insurance industry. The company’s data-driven approach, end-to-end claims management and customized solutions are committed to delivering more profitable, sustainable portfolios for underwriters in the North American logistics sector.

William “Liam” Richards, chief executive officer of Arete, lays out the company’s vision: “We are focused on ‘intelligent adjusting.’ Claims management is not just about navigating the complexities inherent in those claims, but today is about delivering pioneering insights that will redefine industry standards. Arete’s multi-node, cloud-based architecture “Crux©” and 360-degree data analytics will empower our clients with the tools to run sustainable, profitable portfolios.”

Richards previously held senior positions at WK Webster Overseas Ltd. in the UK and US. Juliet Good is Arete’s vice president, bringing more than twenty-five years industry experience, fully half of which was in marine and legal liability claims resolution for transportation intermediaries.

“Data-driven decisions lead to smarter outcomes for our clients, reinforcing the importance that sophisticated analytical tools play in claims resolution and overall portfolio profitability,” adds Good.

Philip Bilney, executive chairman of +8 Partners, said: “Arete catapults the TPA scene into a new era with the most imaginative and robust technology offering in the sector, an intelligent and nuanced offering epitomizing the philosophy of +8.”

“Liam and Juliet are already well known to many of our clients, and their leadership and experience will provide the focus and commitment necessary for the delivery of genuinely intelligent adjusting solutions.”

Arete will work closely with Cornice Claims Associates to extend the +8 Partners platform and support its existing and fast-growing logistics insurance business in North America.

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Tips for Handling Delayed Goods Due to Panama Canal Backlog

In 2024, the canal might miss a total 1,500 vessels that would pass through in normal conditions, said the Authority’s Deputy Administrator Ilya Espino. Due to the transit restrictions, the Panama Canal Authority has forecast a reduction of up to $700 million in toll revenues for the current fiscal year ending in September. (Source: Reuters, Feb. 7)

The Panama Canal Authority has been restricting traffic since summer 2023, resulting in numerous shipments that have been stuck or delayed. This included a heavy backlog of goods that were sent to meet increased demand of the 2023-24 Holiday season.

The delays were caused by drought in the canals, made worse by on-going restrictions, which resulted in containers of perishables and Holiday-market products arriving after their ETA. This type of scenario typically leads to a mass rejection from the consignee and increased abandonment when shipments do arrive.

If the situation doesn’t improve, vessels might have to consider using other routes, which could lead to an increase in the cost of transportation.

From a Freight Forwarder’s perspective, delay is generally excluded, especially if it falls outside your control. Claims of such nature should be rejected. This may cause friction with customers, but to avoid expensive claims, it is imperative to not agree to specific times or dates of arrival.

Insurers, however, expect to receive many uncleared or abandoned containers that were intended for a particular market and no longer retain the same value. It is important for the Forwarder to carefully monitor all containers that might be traveling via the Panama Canal and notify their liability insurers immediately. If the goods are likely to be abandoned, it is important notify early to avoid incurring unnecessary storage/demurrage costs.

The shipper/consignee must be made aware they cannot simply abandon delayed cargo without settling all charges. Even if the cargo has little value, it will be less expensive for the shipper to accept delivery than to abandon shipments.

For More Information

Please contact our specialists: info@areteadjusting.com.

This article was written in conjunction with +8 Partners member companies.

Disclaimer: All claims are subject to the terms, conditions and exclusions of the relevant product disclosure statement and/or policy.

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